Dissenting investors don’t have voting rights on CEO removal: Byju’s

Bengaluru: After a number of investors called for an extraordinary general meeting to oust edtech startup Byju’s chief executive and co-founder Byju Raveendran, its parent company Think & Learn Private Limited (TLPL) said that the shareholder's agreement signed by investors does not give them the right to vote on management changes.

In a statement on Friday, TLPL also mentioned that a $200 million rights issue announced earlier this week will continue as planned.

“The criticality of the rights issue has been shared with all shareholders, with capital being pivotal for a successful turnaround. Unfortunately, the company and our employees are paying the price for a stand-off triggered by some investors,” the company said.

This comes even as Byju’s American subsidiary Byju’s Alpha filed for Chapter 11 bankruptcy in a United States court on Friday, listing liabilities in the range of $1 billion to $10 billion, with assets worth $500 million.

Investors who have called for Raveendran’s ouster include venture capital giants like Prosus NV, General Atlantic, Peak XV, Sofina and Chan Zuckerberg. Through the EGM, they have also sought resolution for outstanding governance, financial mismanagement and compliance issues and the reconstitution of the board of directors.

Additionally, in a letter to its employees sent on Friday, accessed by DH, Byju’s said these investors saw the rights issue as an opportunity to conspire and demand the removal of Raveendran.

“We are pained to see this action from a few of the investors who should have supported us in our fight at these challenging times, instead of directly speaking to the media,” the letter stated. “The founders are the largest investors and the greatest fighters for Byju’s,” it added.

The US subsidiary is at the heart of a $1.2 billion loan that Byju’s took from overseas lenders in 2022, and has since defaulted on paying interests. The lenders had last week moved the Company Law Tribunal in India with an insolvency petition for Byju’s in a bid to recover the loan.

Byju’s Alpha is currently managed by a court-appointed agent, and the proceeds from the bankruptcy will be used to fund the lenders’ legal fight with TLPL. It will also sue a hedge fund that Byju’s had transferred $500 million from the loan to, which lenders say was a way for the company to hide the sum. Byju’s has in turn said the money was given to the fund for investment purposes.

Despite all of these issues, the company is confident that the rights issue, through which its valuation may fall to $225 million from a high of $22 billion in 2022, is the solution to its persistent capital issues. In the letter to its employees, Byju’s claimed the issue has received commitment for over 100% of the proposed amount, and the raise will take another 25 days to be completed.

The letter, however, acknowledged that salaries for January will be delayed “because of the artificially induced crisis by these select investors,” adding that Raveendran had been funding the paychecks from his own pocket and will continue to do so.

Employees DH spoke to on the condition of anonymity said the delay in salary disbursement has been a persisting issue for months now.

“The success of the rights issue will ensure that we have sufficient operational capital to fund our short-term needs from March onwards,” the company told its employees.